Dell Reports Second Quarter Financial Results

GAAP earnings of $0.42 per share, non-GAAP earnings of $0.50 per share

Dell Enterprise Solutions and Services revenue grew 6 percent year over year to $4.9 billion; now represents more than 50 percent of company marginand more than a third of revenue

Dell announced fiscal 2013 second-quarter results today with revenue of $14.5 billion, GAAP operating income of $901 million, and earnings of $0.42 per share. Consistent with its strategy, Dell saw growth in its server, services and networking businesses.

“We’re transforming our business, not for a quarter or a fiscal year, but to deliver differentiated customer value for the long term,” said Michael Dell, chairman and CEO. “We’re clear on our strategy and we’re building a leading portfolio of solutions to help our customers achieve their goals.”

“Our performance in the second quarter provided another proof-point that our long-term strategy is right,” said Brian Gladden, Dell chief financial officer. “ W e continued our progress in shifting the mix of our business to higher-margin enterprise solutions, led by solid growth in our server, networking, services, and Dell IP storage businesses.

“Growth in our PC business was challenging, as we saw a tough macroeconomic and competitive environment, and continued to focus on higher-value solutions in this business,” Mr. Gladden said.

Results

Revenue in the quarter was $14.5 billion, an 8 percent decrease from the previous year as desktop and mobility revenue contracted.

GAAPoperating income for the quarter was $901 million, or 6.2 percent of revenue. Non-GAAP operating income was $1.1 billion, or 7.8 percent of revenue. Gross margins for the quarter benefitted by approximately $70 million, or 50 basis points, primarily resulting from a vendor settlement.

GAAP earnings per share in the quarter was 42 cents, down 13 percent from the previous year; non-GAAP EPS was 50 cents, down 7 percent.

Cash flow from operations in the quarter was $637 million. Dell ended the quarter with $14.6 billion in cash and investments.

Fiscal-Year 2013 Second Quarter and Half Year Highlights

Second Quarter

Fiscal Year First Half

(in millions)

FY13

FY12

Change

FY13

FY12

Change

Revenue

$14,483

$15,658

(8%)

$28,905

$30,675

(6%)

Operating Income (GAAP)

$901

$1,146

(21%)

$1,725

$2,358

(27%)

Net Income (GAAP)

$732

$890

(18%)

$1,367

$1,835

(26%)

EPS (GAAP)

$0.42

$0.48

(13%)

$0.77

$0.97

(21%)

Operating Income (non-GAAP)

$1,123

$1,328

(15%)

$2,133

$2,704

(21%)

Net Income (non-GAAP)

$875

$1,006

(13%)

$1,636

$2,056

(20%)

EPS (non-GAAP)

$0.50

$0.54

(7%)

$0.93

$1.08

(14%)

Information about Dell’s use of non-GAAP financial information is provided under “Non-GAAP Financial Measures” below. Non-GAAP financial information excludes costs related primarily to the amortization of purchased intangibles, severance and facility-action costs, certain settlement costs and acquisition-related charges. All comparisons in this press release are year over year unless otherwise noted.

Strategic Highlights:

Dell Enterprise Solutions and Services revenue grew 6 percent year over year to $4.9 billion and comprised 34 percent of Dell’s consolidated revenue and more than 50 percent of its margin. This business is now approaching a $20 billion annual run rate.

Server and networking revenue grew 14 percent.

Revenue of Dell-owned storage increased 6 percent.

Dell Services revenue was $2.1 billion, up 3 percent, with new signings of more than $1 billion in the first half of the year, and $1.8 billion over the last 12 months.

Year to date Dell has announced six acquisitions and closed five, all of which will help drive a higher-value mix of solutions with more predictable revenue and margin streams. The company expects to close the pending acquisition of Quest Software in the second half of the third quarter.

Public revenue was $4.1 billion, a 6 percent decrease. O perating income for the quarter was $379 million, or 9.3 percent of revenue. Server and networking revenue increased 4 percent.

Small and Medium Business revenue was $3.3 billion, a 1 percent decline. Operating income was $382 million, or 11.7 percent of revenue. Enterprise solutions and services grew 15 percent led by an increase of 27 percent in services revenue and 16 percent in servers and networking.

Consumer revenue was $2.6 billion, a 22 percent decline. Operating income was $14 million or 0.5 percent of revenue.

Revenue in Americas was down 6 percent; EMEA was down 7 percent, and Asia-Pacific and Japan revenue was down 12 percent.Revenue in BRIC countries was down 15 percent.

Company Outlook:

Dell expects continued solid growth in Enterprise Solutions, Services and Software and also a challenging end-user computer environment in the second half of the year. Given the uncertain economic environment, competitive dynamics and soft Consumer business, Dell expects third-quarter revenue to be down 2-5 percent from second-quarter levels. In addition, the company is modifying its full-year earnings outlook to at least $1.70 per share on a non-GAAP basis, which includes a 2-to-3 cent dilutive impact from its pending acquisition of Quest Software.

About Dell

Dell Inc. (NASDAQ: DELL) listens to customers and delivers worldwide innovative technology, business solutions and services they trust and value. For more information, visit www.dell.com. T he second-quarter a nalyst call with Michael Dell, chairman and CEO, and Brian Gladden, CFO, will be webcast live today at 4 p.m. CDT and archived at www.dell.com/investor. To monitor highlighted facts from the analyst call, follow on the Dell Investor Relations Twitter account at: http://twitter.com/dellshares or hashtag #DellEarnings. To communicate directly with Dell, go to www.dell.com/dellshares.

Segment Realignment:In the first quarter of Fiscal 2013, Dell made certain segment realignments in order to conform to the way Dell internally manages segment performance. These realignments affected all of Dell's operating segments, but primarily consisted of the transfer of small office business customers from the Small and Medium Business segment to the Consumer Segment. Dell has recast prior period amounts to provide visibility and comparability. None of these changes impacts Dell's previously reported consolidated net revenue, gross margin, operating income, net income, or earnings per share.

Non-GAAP Financial Measures:This press release includes information about non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share (collectively with non-GAAP gross margin and non-GAAP operating expenses, the “non-GAAP financial measures”), which are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles. In the following tables, Dell has provided a reconciliation of each historical non-GAAP financial measure to the most directly comparable GAAP financial measure under the heading “Reconciliation of Non-GAAP Financial Measures.” Dell encourages investors to review the reconciliation in conjunction with Dell’s presentation of these non-GAAP financial measures.

Special Note on Forward Looking Statements: Statements in this press release that relate to future results and events (including statements about Dell’s future financial and operating performance, trends relating to mix shift, macroeconomic challenges, effects of our acquisitions and success relating to strategic transformation, as well as the financial guidance with respect to revenue and non-GAAP earnings per share) are forward-looking statements and are based on Dell's current expectations. In some cases, you can identify these statements by such forward-looking words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “confidence,” “may,” “plan,” “potential,” “should,” “will” and “would,” or similar expressions. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including: intense competition; Dell’s reliance on third-party suppliers for product components, including reliance on several single-sourced or limited-sourced suppliers; Dell’s ability to achieve favorable pricing from its vendors; weak global economic conditions and instability in financial markets; Dell’s ability to manage effectively the change involved in implementing strategic initiatives; successful implementation of Dell’s acquisition strategy; Dell’s cost-efficiency measures; Dell’s ability to effectively manage periodic product and services transitions; Dell’s ability to deliver consistent quality products and services; Dell’s ability to generate substantial non-U.S. net revenue; Dell’s product, customer, and geographic sales mix, and seasonal sales trends; the performance of Dell’s sales channel partners; access to the capital markets by Dell or its customers; weak economic conditions and additional regulation affecting our financial services activities; counterparty default; customer terminations of or pricing changes in services contracts, or Dell’s failure to perform as it anticipates at the time it enters into services contracts; loss of government contracts; Dell’s ability to obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; infrastructure disruptions; cyber-attacks or other data security breaches; Dell’s ability to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other compliance matters; impairment of portfolio investments; unfavorable results of legal proceedings; Dell’s ability to attract, retain, and motivate key personnel; Dell’s ability to maintain strong internal controls; changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; and other risks and uncertainties discussed in Dell’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for its fiscal year ended February 3, 2012. In particular, Dell’s expectations with regard to revenue and non-GAAP earnings per share for the full fiscal year ending Feb. 1, 2013 assume, among other matters, that there is no significant decline in economic conditions generally or demand growth specifically, that macroeconomic challenges do not materialize into more significant economic difficulties, no significant change in product mix patterns, and continued geographic customer demand trends. Dell assumes no obligation to update its forward-looking statements.

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